What Matters for Global Markets in the Week Ahead

Wondering what’s going to be affecting sentiment in the markets this week? With the U.S. closed on Monday, markets are looking ahead to U.S. inflation data and euro-zone manufacturing and services data later this week, Hungary and Chile await interest rate decisions, we’ll see the latest Federal Open Market Committee meeting minutes, and the Singaporeans will likely be told to have more children. Here’s the lineup of the most important macroeconomic political events for global markets in the coming week, analyzed by our Macro Horizons team.

The decision to hold interest rates steady at an all-time low of 2.5% in early February was well expected, but the Reserve Bank of Australia surprised some observers by seeming to take further rate cuts off the table after a surprisingly strong December inflation print. Wretched unemployment data out last week is causing some observers to question if the central bank was rash to rule out further cuts. The minutes will shed light on the contours of the bank’s internal debate. (MA)

Analysts increasingly believe the Bank of Japan will be forced to ease policy further this year as the economy decelerates, but no change is expected at the two-day meeting that wraps up Tuesday. Still, Gov. Kuroda’s comments after the decision will be closely watched for hints of the bank’s future direction and for insight into any possible divisions among board members. Don’t expect any shift in policy at least until the sales-tax hike takes effect from April. (MA)

U.K.: 4:30 a.m. EST (9:30 a.m. London)

-January consumer prices. [Expected -0.6% on the month and +2.0% on the year versus +0.4% and +2.0%, respectively, in December]

-January producer prices. [Expected output +0.2% on the month and +0.7% on the year versus unchanged and +1.0%, respectively, in December; expected input -0.7% on the month and -2.9% on the year vs. up 0.1% and down 1.2% respectively in December]

As long as inflation remains well behaved, the Bank of England is likely to stick to its lower for longer policy. There are still no pipeline pressures and, if anything, current projections are for consumer prices to slightly undershoot the BOE’s 2% target over the next couple of years. (AM)

Germans are optimistic about their economy, despite last year’s lackluster performance. Growth is expected to come in at around 2% in 2014, a substantial improvement, though still overly dependent on exports. (AM)

With inflation remaining subdued and the emerging market turmoil settling down, the Hungarian central bank is expected to slice another tenth of a percentage point off its policy rate, marking the 19th consecutive monthly reduction. (AM)

This index has stagnated at around this level for months now. Does this mean the housing recovery of the last year or so has just paused or is it over? Or worse, has it topped? This matters to overall growth, as the feed-through from home-buying and home-building is very important to the economy. (MC)

Chile’s central bank is playing a steady hand, even though the peso has fallen sharply in recent months. Unlike other countries, however, Chile can afford to take a hands-off approach to rates and avoid panicky rate hikes to contain outflows. That’s because there is broad international support for its orthodox policy base. In that sense, this is one of those moments where Chile gets to cash in its chips for making tough decisions in the past. In fact, rates at 4.5% may be too high as growth slows. The central bank could move to cut rates. (MC)

-December average earnings [Expected up 1.0% on the year vs. up 0.9% in November]

The Bank of England’s has struck a consensus since Mark Carney’s arrival at the helm, agreeing to keep rates and bond purchases steady. The U.K. economy’s strength suggests the next move is going to be up, but the question now is whether that happens at the end of this year or early next. (AM)

The slowdown in mortgage origination for purchases continues. That could be weather related, as a bitterly cold winter slows down the house-hunting and mortgage-obtaining process. But it’s clear that the recovery in housing demand that was spurring the economy six months ago is not longer around. (MC)

Cold weather is clearly messing around with housing starts, and will continue to. But the downturn in building permits could also reflect a more entrenched slowdown in housing construction, which can be a problem more broadly for this important job-creating sector. (MC)

After a seemingly aberrant pickup in intermediate inflation pressures in December, we are expected to go back to the anemic price advance pace that the wholesale sector has seen for some time. Still not deflationary, but no sign that pricing power is coming back any time soon to the U.S. economy. (MC)

Mr. Lockhart is not a voting member of the Federal Open Market Committee this year but he is considered something of an important centrist voice within the Fed. His take — less than two hours before minutes to the last FOMC meeting are released — on why the Fed is continuing on its tapering path even as the economy is falling short of expectations should be interesting. (MC)

U.S.: 1 p.m. EST. Federal Reserve Bank of St. Louis President James Bullard speaks at the Exchequer Club Luncheon in Washington D.C.

Mr. Bullard, also a non-voter on the FOMC this year, is seen as a bit of dove these days. Does he see any risks in the Fed continuing down a path of tapering its bond-buying when jitters persist in global financial markets and when the U.S. economy is not showing the kind of momentum that was expected at year-end? (MC)

U.S.: 2 p.m. EST. Federal Open Market Committee meeting minutes.

These minutes pertain to the meeting two weeks ago when the Fed, as expected, chose to cut another $10 billion off its bond-buying program. What was striking in the statement that followed was the absence of any reference to the turmoil in emerging markets of that time and the fallout that was occurring in U.S. financial markets. The minutes will offer an opportunity to determine whether these issues were even discussed. (MC)

U.S.: 7 p.m. EST. San Francisco Fed President John Williams speech at Money Marketeers event in New York.

Capping of a string of Fed related news through Wednesday afternoon, Mr. Williams gets to weigh in on the same pressing topics. He is not an FOMC voter this year, either. (MC)

THURSDAY

GERMANY: 2 a.m. EST (8 a.m. Berlin) January producer prices. [Expected +0.2% on the month and -0.8% on the year versus +0.1% and -0.5%, respectively, in December]

Germany’s economy is picking up, but there are no inflationary pressures to worry the European Central Bank. (AM)

FRANCE: 2:45 a.m. EST (8:45 a.m. Paris) January consumer prices [Expected -0.5% on the month and +0.8% on the year vs. -0.3% and +0.7% respectively]

Deflationary worries are expected to be alleviated slightly although French inflation is still too low for comfort. (AM)

Given Taiwan's central role in electronics production, its exports and export orders are closely watched as harbingers of global demand. Export orders are considered a better gauge of the island's economic activity than the actual exports they presage a month or two down the line, since the former includes orders at Taiwanese-owned factories abroad (i.e., in mainland China) while the latter does not. Still, the Lunar New Year effect mentioned above makes the January data less reliable than usual. (MA)

Year-end seasonal distortions should no longer be affecting this weekly release, but now it would be buffeted by unseasonably cold weather. That said, economists are expecting the claims report to reflect a rather stable labor market. (MC)

CPI data continue to reflect pervasive disinflationary forces both at home and abroad. If it's not enough to stop the Fed from tapering its bond-buying it is the kind of trend that will ensure that its holds off on raising interest rates for a very long time. (MC )

A geographically narrow indicator but one that can move markets because of its early release schedule, the number will be perused for any signs that the softening in business activity captured in some January data continued into February. (MC)

The Bank of Japan stuck to its upbeat inflation outlook and bullish view of the economy at its Jan. 21-22 meeting, and the minutes are likely to be unremarkable. Hopefully they’ll provide some insight into the internal debate on the board about whether to engage in further easing if Japan’s economy doesn’t accelerate more sharply or inflation doesn’t seem likely to reach the BOJ’s 2% target in the allotted timeframe. (MA)

Singapore’s economy grew fairly strongly in the third quarter but an advance estimate issued by the government in early January foresaw a contraction in the fourth quarter on weak manufacturing and construction activity. (It’s worth noting, for the record, that the government’s advance estimate for the third quarter also had predicted a contraction, which proved inaccurate.) Six economists in a Wall Street Journal poll, on the other hand, tipped fourth-quarter GDP to remain unchanged from the third quarter. Given the volatility in pharmaceutical production, one of the main industries driving Singapore’s economy, sharp quarterly fluctuations in GDP are the norm rather than the exception. For the full year, the government’s advance estimate was that GDP grew 3.7% in 2013, sharply higher than 1.3% growth in 2012. (MA)

FRIDAY

SINGAPORE: Time N/A, 2014 budget statement

More sex! That’s likely to be the upshot of the government’s budget announcement–seriously. Singaporeans’ failure to reproduce quickly enough is a serious problem for the island’s demographics, and the government has used previous budgets to announce programs to incentivize marriage and parenthood. Focus will also be on any new initiatives to limit the number of foreign workers in Singapore and sops for the elderly or other social programs as the ruling People’s Action Party sees its support dipping. With its budget is in surplus the government doesn’t need to borrow from the market, so unlike most countries’ budget presentations, the focus will not be on debt dynamics. (MA)

U.K.: 4:30 a.m. EST (9:30 a.m. London)

January retail sales [Expected down 1.5% on the month and up 4.6% on the year vs. up 2.6% and up 5.4% respectively in December]

The British consumer is still leading the economy forward. January retail sales are expected to hold firm after a blowout December. The positive tone is spreading to public finances as the overall economy recovers. (AM)

Brazil’s external account is looking a little less alarming since the real’s depreciation versus the dollar over the past year, but the current account deficit is still above the 3% threshold traditionally seen as posing risks of a financing gap. (MC)

Even more so than the U.S., Canada is facing a deflation risk. The state of retail sales during the holiday shopping month could be a good gauge–along with the January CPI, of course–of whether those risks persisted around year-end.

Mexico, in theory, should be doing reasonably well. Its finances are thought to be in better shape than so many other emerging-market countries. Its flexible exchange rate works as a good buffer. And everything from a reform of its oil sector to a reduction in drug violence is helping to build optimism about the future. But even with the U.S. recovering, the Mexican economy has struggled in recent months. As much as anything that could reflect the costs of a general tightening in liquidity flows to emerging markets as the Fed has started to ease off on its dollar stimulus. Mexico was one of the biggest beneficiaries of the financial inflows from that stimulus. Now that the trend has reverted to outflows, financing cost to its businesses are rising. (MC)

U.S.: 10 a.m. EST. National Association of Realtors January existing home sales. [Expected -3.7% on month to 4.69 million units annualized vs. +1% on month to 4.87 million in December.]

Higher mortgage rates and bad weather have put a dampener on what had been solid home sale growth earlier this year. Real estate agents are still optimistic that demographic effects will eventually force buyers back into the market, but the fact is that the recovery from the crisis has struggled to find lasting momentum. (MC)

U.S.: 1:10 p.m. EST. (12:10 p.m., St. Louis) Federal Reserve Bank of St. Louis President James Bullard speaks at the St. Louis Forum Luncheon.

His second chance during the week to weigh in on the state of the economy and monetary policy, this time before a home audience. (MC)